High-priced nickel market tight as ever

Low inventories and strong demand, especially from the stainless steel sector, have combined to keep the market tight. Nickel, which has been trading in London in the $8-$9(US) per lb range, last year averaged $6.27, almost 2 1/2 times the 1987 average of $2.61 and 3 1/2 times the 1986 average of $1.76.

Stainless steel production, says Metals Economics Group of Halifax in a recent report, is responsible for about 60% of nickel consumption, compared with about 45% a decade ago and 35% two decades ago.

Stainless steel production grew to a record 9.1 million tonnes in 1987, up 12.1% from a year earlier, while nickel consumption that year in the non-communist world reached a record 642,000 tonnes, up 13.6%. (Similar data for 1988 is unavailable.)

Capital spending increases, particularly in the automotive, pulp and paper, food processing and petrochemical industries in the United States, helped to fuel the demand for stainless steel, with nickel-based alloys in hot demand by the aerospace industry, Metals Group reports. Global demand

In Europe, nickel is sought by the pipe, food processing, chemicals and paper sectors for stainless steel application; in Japan, the metal is a favorite of the housing and public works sectors; and in Canada, the metal has been in demand from auto-parts manufacturers.

Primary production of the base metal, as one would suspect, has been on the rise the past few years; over-all output jumped 3.6% in 1987 (to 513,000 tonnes) and a projected 10.7% in 1988, and could rise by 5% this year.

Canada remains a central player on the world nickel stage, with Inco supplying about 35% of the non- communist world’s nickel and Falconbridge about 12%. The huge profits being reported by Inco and Falconbridge directly reflect the higher metal prices.

That stainless steel production worldwide is near capacity and unlikely to grow much more leads Metals Group to conclude “the nickel market should loosen slowly, allowing the rebuilding of inventories as the decade ends.”

Estimates from four sources as to what the nickel price will do in 1989 are presented next. Rudolf Wolff & Co. foresees a $3.50-$3.80 price range by year-end, while Resource Strategies estimates $3.10 is possible during the fourth quarter. Shearson Lehman Hutton is projecting a $6.50 average, and Barclays de Zoete Wedd a $6.28 average.

Aluminum enjoyed an excellent year in 1988 with the price in London averaging $1.18(US) per lb and consumption growing by 3.7%, the sixth straight year of expansion.

The metal’s 1998 price compares with a 1987 average of 70 cents and a 1986 average of 52 cents .

Investment firm Shearson Lehman Hutton, in its Annual Review of the World Aluminum Industry 1989, estimates consumption exceeded 14.1 million tonnes last year. Primary aluminum production, on the other hand, grew by 7.3% to 13.8 million tonnes.

According to the investment firm, on an end-use basis, packaging has had a lot to do with the surge in aluminum sales. “Although the dominant U.S. market may be approaching saturation, there is ample scope for growth elsewhere,” writes the company. “Last year in Japan, a noticeable shift toward s aluminum at the expense of glass for beer packaging saw shipments to this sector rise by nearly 20%.”

The use of aluminum in auto manufacturing has risen in an effort by automakers to reduce vehicular weight and hopefully improve fuel economy. And aluminum has also benefited from better times in the construction industry, perhaps more on the non-residential side than in the residential sector where U.S. housing starts have been on the decline.

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